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The Benefits of Separating Early Retirees from the Unemployed: Simulation Results for Belgian Wage Earners

Author

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  • Desmet, Raphaël

    () (Federal Planning Bureau, Belgium)

  • Jousten, Alain

    () (University of Liège)

  • Perelman, Sergio

    () (CREPP, Université de Liège)

Abstract

The pool of early retirees is characterized by a large heterogeneity along several criteria. The present paper focuses on the key distinction between those in forced early retirement and those who retire early by individual choice. We start by estimating a retirement probit model for older workers in Belgium. Based on these estimates, we then perform micro-simulations relating to a hypothetical actuarial reform of a pension system, i.e., a reform imposing on average actuarial neutrality with respect to the time of retirement. We explore two scenarios, one where the entire population is subjected to the actuarial system, and one where a duly screened sub-sample of the unemployed is shielded against these actuarial adjustment factors, a group we call the truly unemployed. We evaluate the impact on the average retirement age, the pension budgets as well as indicators of redistribution within the group of the elderly. We find that the extra budgetary gain of exposing this subgroup to the full-blown reform is modest, while the distributional cost is rather high. Our results thus comfort the idea that the budgetary cost of a focused unemployment system are moderate, and that returning the unemployment insurance to its primary role might be a desirable strategy.

Suggested Citation

  • Desmet, Raphaël & Jousten, Alain & Perelman, Sergio, 2005. "The Benefits of Separating Early Retirees from the Unemployed: Simulation Results for Belgian Wage Earners," IZA Discussion Papers 1571, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1571
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    References listed on IDEAS

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    1. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers 202, OECD Publishing.
    2. Bound, John, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," American Economic Review, American Economic Association, vol. 79(3), pages 482-503, June.
    3. J. A. Mirrlees & P. Diamond, 1982. "Social Insurance with Variable Retirement and Private Saving," Working papers 296, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Brooks,Robin & Razin,Assaf (ed.), 2005. "Social Security Reform," Cambridge Books, Cambridge University Press, number 9780521844956, March.
    5. Arnaud Dellis & Raphaël Desmet & Alain Jousten & Sergio Perelman, 2004. "Micro-Modeling of Retirement in Belgium," NBER Chapters,in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 41-98 National Bureau of Economic Research, Inc.
    6. Raphael Desmet & Alain Jousten & Sergio Perelman & Pierre Pestieau, 2007. "Microsimulation of Social Security Reforms in Belgium," NBER Chapters,in: Social Security Programs and Retirement around the World: Fiscal Implications of Reform, pages 43-82 National Bureau of Economic Research, Inc.
    7. Pierre Pestieau & Jean-Philippe Stijns, 1999. "Social Security and Retirement in Belgium," NBER Chapters,in: Social Security and Retirement around the World, pages 37-71 National Bureau of Economic Research, Inc.
    8. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 25-50.
    9. Bound, John, 1991. "The Health and Earnings of Rejected Disability Insurance Applicants: Reply," American Economic Review, American Economic Association, vol. 81(5), pages 1427-1434, December.
    10. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May.
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    Citations

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    Cited by:

    1. Maes, Marjan, 2008. "Poverty persistence among Belgian elderly: true or spurious?," ISER Working Paper Series 2008-24, Institute for Social and Economic Research.
    2. David Dorn & Alfonso Sousa-Poza, 2010. "'Voluntary' and 'involuntary' early retirement: an international analysis," Applied Economics, Taylor & Francis Journals, vol. 42(4), pages 427-438.
    3. Marjan, MAES, 2008. "Poverty persistence among Belgian elderly in the transition from work to retirement : an empirical analysis," Discussion Papers (ECON - Département des Sciences Economiques) 2008042, Université catholique de Louvain, Département des Sciences Economiques.
    4. Marjan, MAES, 2008. "Does the dismantlement of early retirement schemes increase unemployment in Belgium ?," Discussion Papers (ECON - Département des Sciences Economiques) 2008041, Université catholique de Louvain, Département des Sciences Economiques.
    5. Bellmann, Lutz & Janik, Florian, 2007. "Firms and Early Retirement: Offers That One Does Not Refuse," IZA Discussion Papers 2931, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    retirement; older worker; inequality;

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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